Vanguard Checking and Taxes

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Vanguard Checking and Taxes

Postby SGM » Wed Jan 23, 2013 6:04 am

:annoyed I was rather shocked to see that every check from my Vanguard bond fund has been reported on a 2012 1099 as a separate line. In the past it I received a 1099 that summed up the total gains or losses for check writing and were entered on one line on my tax form. Now one entry is required for every check. So much for using Vanguard's funds for paying any bills anymore. So long to a habit I have had for 20+ years. Thanks IRS. Thanks Vanguard. I will be warning my family off of using Vanguard's check writing privileges in the future. Did Vanguard give us any warning of this change in advance? If so I don't recall seeing it.
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Re: Vanguard Checking and Taxes

Postby Gill » Wed Jan 23, 2013 7:13 am

It's not Vanguard's fault. Every check from a bond fund is a sale. Are you sure you've done it from a bond fund in the past?
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Re: Vanguard Checking and Taxes

Postby awval999 » Wed Jan 23, 2013 7:40 am

I would consider using a Money Market account as the checkwriting account.
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Re: Vanguard Checking and Taxes

Postby livesoft » Wed Jan 23, 2013 7:58 am

Why worry about this? Don't you simply download the 1099 right into your TurboTax with one click?
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Vanguard Checking and Taxes

Postby neurosphere » Wed Jan 23, 2013 9:39 am

Does this have anything to do with the new regulations concerning reporting of covered shares to the IRS? Is it possible that Vanguard is merely following a new law, rather than having created a new Vanguard policy without telling you?
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Re: Vanguard Checking and Taxes

Postby sscritic » Wed Jan 23, 2013 10:14 am

neurosphere wrote:Does this have anything to do with the new regulations concerning reporting of covered shares to the IRS? Is it possible that Vanguard is merely following a new law, rather than having created a new Vanguard policy without telling you?

Maybe. Sales of uncovered shares were also downloaded on separate lines as required (but with the notice that the basis would not be reported to the IRS).

As I recall the instructions for the old Schedule D, you could group purchases as "Various," but you could not group sales. Each sale occurs on a specific date. I guess if you had two sales on the same day, you could group them. I sold two lots on the same day and sent the proceeds to two different banks. The download was on two lines. I think it will be more trouble than it is worth to combine them on one.

P.S. I have used check writing before, but it has been years. Now you are making me go look for my 10 year old 1099.
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Re: Vanguard Checking and Taxes

Postby SSSS » Wed Jan 23, 2013 11:22 am

MBMiner wrote:It's not Vanguard's fault. Every check from a bond fund is a sale. Are you sure you've done it from a bond fund in the past?


In the past you received an Average Cost Summary & could enter everything as a single sale (or two -- one short-term and one long-term).

Vanguard sent out a note that with the new 1099R basis reporting requirements, they're no longer doing the Average Cost Summary.

sscritic wrote:As I recall the instructions for the old Schedule D, you could group purchases as "Various," but you could not group sales.


You could group sales by listing them as a single sale on December 31st. You were supposed to attach a statement to your return with details (such as the Average Cost Summary), but the IRS never actually asked me for one. The rules said that you should attach a statement, not that you must attach a statement.
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Re: Vanguard Checking and Taxes

Postby SGM » Wed Jan 23, 2013 11:26 am

I believe the reason has nothing to do with Vanguard, but with new IRS rules. They will likely hire additional people to find errors in the range of a few dollars. I was audited last year and responded to a potential 15 errors. It turned out there was only one mistake. I sent the a check for $24, and they must have spent hundreds of dollars trying to find the small mistake. An elderly relative has been audited 3 years in a row, and my wife has had to go down to the IRS office to explain their errors. They don't seem to understand down there and they basically have to be hit over the head with records to shut them up. They don't apologize either. :annoyed

I use HR Block software because I like it and one year Turbotax required too much personal information in order to register. It was an afront to my sense of privacy, so I dropped them. I have read that many others refused to register with them that year and that they no longer require that information because of the uproar. I have been very happy with HR Block software. I have already imported last years HR Block data. I wonder if I could use the Turbotax to import Vanguard's data then import it to HR Block without losing the other information. Maybe I can import data into Quicken ( I no longer use it) and then import into HR Block. I will give this a try after backing up the files I have already set up. I would not go back to Turbotax after their prior intrusion into private information, although I have been offered free Turbotax software.

I will also call up my Vanguard representative to get his take on the reason for not summing up the LT and ST gains/losses for the bond fund.
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Re: Vanguard Checking and Taxes

Postby SGM » Wed Jan 23, 2013 5:18 pm

Well I talked to the Vanguard representative and they only gave me directions on how to download transactions not 1099s. I will have to enter all those checks as LT or ST gains by hand. Vanguard has gone way down in my esteem.

The IRS appears to be discouraging people from investing by requiring this level of paperwork, when for the last 20 years it was okay for Vanguard to add up the various gains and give me one number to put into the tax software. It reminds me of the half assed individual who insiste in results to the 4th digit when the instrument was only accurate to the 2nd digit. Why does the IRS need every single check transaction? Will they lose any significant amount of money over Vanguard doing the the totalling for the convenience of all?

I don't think I will see any of these issues from the brokerage side or with ETFs so I may drop some Vanguard funds and certainly drop the check writing. Whoa take me back to my good old drip days; keeping track of drips was way easier than this garbage. My expenses were a lot lower, I was fairly well divesified, and still made a good deal of money even if it was just attributable to blind, thoughtless luck. :x
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Re: Vanguard Checking and Taxes

Postby livesoft » Wed Jan 23, 2013 5:28 pm

I use TT and I have never registered it. I just click on "continue" without filling out the registration page. Simple.

So there is a big difference between asking for personal info and requiring personal info. They can ask all they want. I do not give it. OTOH, since they have my tax return and they know how to electronically file it, I am sure they could get all my personal info if they wanted to, but any tax software could do that.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Vanguard Checking and Taxes

Postby Calm Man » Wed Jan 23, 2013 6:56 pm

SGM wrote:Well I talked to the Vanguard representative and they only gave me directions on how to download transactions not 1099s. I will have to enter all those checks as LT or ST gains by hand. Vanguard has gone way down in my esteem.

The IRS appears to be discouraging people from investing by requiring this level of paperwork, when for the last 20 years it was okay for Vanguard to add up the various gains and give me one number to put into the tax software. It reminds me of the half assed individual who insiste in results to the 4th digit when the instrument was only accurate to the 2nd digit. Why does the IRS need every single check transaction? Will they lose any significant amount of money over Vanguard doing the the totalling for the convenience of all?

I don't think I will see any of these issues from the brokerage side or with ETFs so I may drop some Vanguard funds and certainly drop the check writing. Whoa take me back to my good old drip days; keeping track of drips was way easier than this garbage. My expenses were a lot lower, I was fairly well divesified, and still made a good deal of money even if it was just attributable to blind, thoughtless luck. :x


SGM, not being a defender of the IRS, they are NOT asking for information on every check. They are asking for information on every SALE. Without that information there can be no determination of whether gains are long or short or whether wash sale rules have been violated. There is a simple solution, which is to not use a bond fund as a checking account but just to use a money market. That is simple enough and I have always done it that way although I knew that checks -on bond funds were considered sales.
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Re: Vanguard Checking and Taxes

Postby sscritic » Wed Jan 23, 2013 7:12 pm

SGM

Do you use tax software? I downloaded my transactions from Vanguard. The 1099-B transactions went to Schedule D with the correct date and number of shares sold. I did have to enter the basis from the paper 1099-B. I did have to enter var-l for the purchase date. I was asked if there was an entry in box 1c. I clicked on the radio button. I was asked if it was long term or short term. I clicked on the appropriate radio button. Done. Some work, but not excessive.

P.S. How many transactions are we talking about? One hundred would be a little annoying. If I had that many, I would use the worksheet form, not the interview. Copying var-l and checking the two boxes would be quicker on one long form rather than going through the interview 100 times.
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Re: Vanguard Checking and Taxes

Postby JamesSFO » Wed Jan 23, 2013 7:50 pm

SGM wrote:I don't think I will see any of these issues from the brokerage side or with ETFs so I may drop some Vanguard funds and certainly drop the check writing. Whoa take me back to my good old drip days; keeping track of drips was way easier than this garbage. My expenses were a lot lower, I was fairly well divesified, and still made a good deal of money even if it was just attributable to blind, thoughtless luck. :x


I think you are fooling yourself here, the only issue is using a bond fund as a checking account so you have lots of sales + new tax reporting requirements. This really is not VG's fault and any account where you have lots of sales is going to require more effort these days.

Switch to using a money market for check writing, transfer money maybe 6-12x/year from the bond fund to the MMkt and you will have minimal issues.
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Re: Vanguard Checking and Taxes

Postby SGM » Fri Jan 25, 2013 11:24 am

I appreciate the input here. I am sorry to have ventilated so much.I have decided to give turbotax another try. I successfully downloaded 1099-R forms. I have been informed that turbotax cannot download the 1099-div and 1099-B forms for 2012 and that Vanguard's IT is working on that as high priority. The last time I used turbotax, quite a few years ago they had a more limited download capability, and I had less of a need for it anyway. I do know that Vanguard is just following IRS rules. However, I do not think the IRS will benefit from individualizing the cap gains for each check rather than letting Vanguard sum it up and give an overall cap gain for each account. It seems to me to be a gilding the lily syndrome that the IRS is engaging in.

I fully expect we will have to make another trip to the local IRS office to straighten them out for the 4th year in a row concerning an elderly relatives 1040, that was settled sometime ago. We have the letter. I will try not to ventilate on this site if the IRS revisits the same issue again. We feel that we are dealing with some very stupid people at the local office. Even with the letter in hand we have had to go through hoops.



sscritic wrote:SGM

Do you use tax software? I downloaded my transactions from Vanguard. The 1099-B transactions went to Schedule D with the correct date and number of shares sold. I did have to enter the basis from the paper 1099-B. I did have to enter var-l for the purchase date. I was asked if there was an entry in box 1c. I clicked on the radio button. I was asked if it was long term or short term. I clicked on the appropriate radio button. Done. Some work, but not excessive.

P.S. How many transactions are we talking about? One hundred would be a little annoying. If I had that many, I would use the worksheet form, not the interview. Copying var-l and checking the two boxes would be quicker on one long form rather than going through the interview 100 times.

sscritic
Thanks, We are talking about 50 transactions some have specific dates. Have you tried to download the transactions for 2012? Presently, there is a bug see above.

livesoft wrote:I use TT and I have never registered it. I just click on "continue" without filling out the registration page. Simple.

So there is a big difference between asking for personal info and requiring personal info. They can ask all they want. I do not give it. OTOH, since they have my tax return and they know how to electronically file it, I am sure they could get all my personal info if they wanted to, but any tax software could do that.

livesoft,
Thanks, I finally was able to get it downloaded without registering, but not on the first day as once I mistyped a password they wanted information. It worked the following day. I was pleasantly surprised to see how easy it was to download the 1099-R.
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Re: Vanguard Checking and Taxes

Postby sscritic » Fri Jan 25, 2013 11:37 am

SGM wrote:Thanks, We are talking about 50 transactions some have specific dates. Have you tried to download the transactions for 2012? Presently, there is a bug see above.

I use H&R Block. (You said you used to, but switched this year.) H&R Block got the 1099-DIV and the 1099-B. Since my Prime MM fund interest was only $5.18, I didn't get a 1099-INT from Vanguard and H&R Block didn't download what Vanguard didn't offer.

There is still one unresolved problem. Starting this year, tax-exempt mutual funds use the 1099-DIV instead of the 1099-INT. Vanguard put them on paper correctly, but H&R Block didn't pick them up. I don't know if Vanguard didn't tell H&R Block where to look or H&R Block is looking in the wrong place. I have a message in to Vanguard to see what they can tell me before I attack H&R Block.
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Re: Vanguard Checking and Taxes

Postby Calm Man » Fri Jan 25, 2013 11:41 am

SS critic, I have always entered the information by hand. I'm not sure why but when I tried downloading sometimes it didn't work and when it did, I had to check it all for correctness anyway. And don't forget that $5.18 or they will somehow find it and come after you for a cup of coffee.
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Re: Vanguard Checking and Taxes

Postby sscritic » Fri Jan 25, 2013 11:57 am

Calm Man wrote:SS critic, I have always entered the information by hand. I'm not sure why but when I tried downloading sometimes it didn't work and when it did, I had to check it all for correctness anyway. And don't forget that $5.18 or they will somehow find it and come after you for a cup of coffee.

I thought it was pretty clear that I was aware of the $5.18. The fun one was the $0.07 interest on my Wells Fargo checking account. Although they sent a 1099-INT for my CD, they did not include the checking account interest* (BofA did the same). I entered it correctly, but in violation of every IRS rule (or at least one), my tax software (and every other that I know of) rounded it down to $0, which is what will be reported on my return. :)

What part of "add before rounding" do software programmers not understand?

* I think this proves the each line of a 1099 is a separate item. If not, they would have included all the interest they paid me and not excluded the accounts that paid less than $10. I see a strategy forming. Open 1,000 different accounts and earn $5 interest in each. $5,000 of unreported interest! We have a winner!
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Re: Vanguard Checking and Taxes

Postby sscritic » Fri Jan 25, 2013 12:32 pm

Update re download problem:
Vanguard secure message: we are looking into it.

Why download? So I don't type Vangaurd instead of Vanguard. So I don't type 5321.476 shares instead of 5231.467 shares. So I don't type dividends of $1,246.73 instead of $1,264.37. Yes you have to check, but I find it easier to check someone else's typing than to check my own.
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Re: Vanguard Checking and Taxes

Postby HueyLD » Fri Jan 25, 2013 12:49 pm

sscritic wrote:There is still one unresolved problem. Starting this year, tax-exempt mutual funds use the 1099-DIV instead of the 1099-INT. Vanguard put them on paper correctly, but H&R Block didn't pick them up. I don't know if Vanguard didn't tell H&R Block where to look or H&R Block is looking in the wrong place. I have a message in to Vanguard to see what they can tell me before I attack H&R Block.

I decided to try out TT download from Vanguard for 1099-DIV. Well, it IS Vanguard's problem. I can clearly see a BIG "zero" amount for muni bond funds interest. Hopefully VG will have it fixed before 4/15.

EDIT: I am so sorry, sscritic. I made a mistake in downloading and thus falsely accused Vanguard. Upon re-downloading, all numbers are now in the right boxes.
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Re: Vanguard Checking and Taxes

Postby SGM » Fri Jan 25, 2013 8:18 pm

sscritic wrote:
SGM wrote:Thanks, We are talking about 50 transactions some have specific dates. Have you tried to download the transactions for 2012? Presently, there is a bug see above.

I use H&R Block. (You said you used to, but switched this year.) H&R Block got the 1099-DIV and the 1099-B. Since my Prime MM fund interest was only $5.18, I didn't get a 1099-INT from Vanguard and H&R Block didn't download what Vanguard didn't offer.

There is still one unresolved problem. Starting this year, tax-exempt mutual funds use the 1099-DIV instead of the 1099-INT. Vanguard put them on paper correctly, but H&R Block didn't pick them up. I don't know if Vanguard didn't tell H&R Block where to look or H&R Block is looking in the wrong place. I have a message in to Vanguard to see what they can tell me before I attack H&R Block.


sscritic,
I did buy HR Block and have never felt the need to import from Vanguard. I am not sure how to import from Vanguard on HR Block. I got turbotax for free, and the import was really easy. I will have to go back and look at the HR Block program. The Vanguard people didn't seem to know to much about using HR Block either.

Doesn't anyone remember the year (10 years ago?) when turbotax requested all kinds of personal data and lost quite a few customers to what was then called Taxcut? I remembered reading how indignant others were. I certainly was at the time.
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Re: Vanguard Checking and Taxes

Postby SGM » Fri Jan 25, 2013 11:48 pm

I was successful in downloading the tax data from Vanguard to HR Block as well as turbo tax. Turbo tax has a slight advantage as you can check off which data you want to download. HR Block will download all the data. Turbo tax has the import function in its menu. HR Block has import function from financial web sites inside the program under 1099 sections.

Both programs can import from multiple banks, brokerages and MF companies. HR Block mentions that it can download W-2 forms from some corporations.

Vanguard fixed whatever software glitch there was yesterday that only allowed 1099-R to be downloaded.

Thanks for the input everyone.
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